Lower overhead buoys Canadian farmers’ profits

Canadian farmers’ realized net income amounted to $4 billion in 2010, up almost 30 per cent from 2009 following a 19.6 per cent decline that year, Statistics Canada reports.

Lower operating expenses more than offset a small decrease in farm cash receipts in 2010, the federal statistics agency said in a release Friday.

Realized net income is the difference between a farmer’s cash receipts and operating expenses minus depreciation, plus income in kind. Realized net income fell in two provinces, New Brunswick and Alberta, where decreases in farm cash receipts exceeded declines in expenses.

Market receipts, the revenue from the sale of crops and livestock, edged up 0.1 per cent to $41.3 billion. Rising livestock receipts narrowly offset declining crop receipts.

Livestock receipts rose 4.5 per cent to $18.9 billion on the strength of higher hog (up 19.4 per cent) and cattle (up 4.9 per cent) prices. Despite increases in 2010, hogs prices remained below their recent peak in 2004. The market price of cattle was at its highest level since 2002.

Crop receipts fell 3.4 per cent to $22.4 billion. Lower prices, as well as diminished marketings, were among factors contributing to reduced receipts for some crops, including wheat, barley, lentils and potatoes.

Despite lower prices, increased marketings boosted the receipts of canola and soybeans. Receipts for horticulture increased for the third year in a row, which was largely attributable to gains in greenhouse vegetables.

Receipts from supply-managed commodities (dairy, poultry and eggs) fell 0.1 per cent, as poultry prices fell for the first time since 2006.

Farm cash receipts, which include market receipts and program payments, amounted to $44.5 billion in 2010, down 0.3 per cent from 2009. A 4.8 per cent decrease in program payments was mostly accounted for by the reduction in provincial stabilization payments in Quebec in 2010. These reductions were partially offset by increased crop insurance payments, as well as by payments precipitated by difficult seeding conditions in Saskatchewan and Manitoba.

Farm cash receipts for Canadian farmers have so far in 2011 totalled $35.8 billion between January and September, up 10.9 per cent from the same period in 2010, StatsCan noted in a separate release. Farm cash receipts increased in every province during that nine-month period.

Drop in expenses

Total farm expenses, which include total operating expenses and depreciation, fell 2.5 per cent to $40.5 billion in 2010, after a 1.7 per cent drop in 2009. This was largely the result of declines in fertilizer, feed and pesticide expenses. Every province except Ontario (up 0.1 per cent) posted declines in total farm expenses.

While lower prices for many inputs were the primary factor in the drop in expenses, excessive moisture during the spring prevented the seeding of large areas in Saskatchewan and, to a lesser extent, Manitoba. This weakened demand for crop inputs in these provinces.

Lower prices and inventories of hogs and cattle contributed to the second consecutive drop in commercial feed expenses.

In 2010, total net income climbed 4.4 per cent to $3 billion, following a 59.9 per cent drop in 2009. Despite the advance, levels remained well below those of 2008 when total net income reached $7.1 billion, a period of record yields for many crops, which boosted crop production and led to the replenishment of year-end stocks.

Total net income adjusts realized net income for changes in farmer-owned inventories of crops and livestock. It represents the return to owner’s equity, unpaid labour, management and risk.

Agriculture’s net value-added amounted to $11.3 billion in 2010, up $133 million (up 1.2 per cent) from 2009. A $907 million decline in expenses on inputs outpaced a $755 million drop in the total value of production.

Among the provinces, Alberta posted a 70.7 per cent rise in net value added, recovering from losses in 2009. Net value added fell sharply in Manitoba (down 37.8 per cent) and Saskatchewan (down 31.4 per cent).

Net value added measures agriculture’s annual contribution to the national economy’s production of goods and services. It is derived by calculating the total value of agricultural sector production, including program payments, and subtracting the related costs of production (expenses on inputs, business taxes and depreciation).

Realized net income can vary widely from farm to farm because of several factors, including commodities, prices, weather and economies of scale. This and other aggregate measures of farm income are calculated on a provincial basis employing the same concepts used in measuring the performance of the overall Canadian economy. They are a measure of farm business income, not farm household income.